This Resolution adopts funding for the Highway 36 Humboldt-Trinity Counties project of IP Networks, Inc., (IPN) amounting to $4,212,982 from the California Advanced Services Fund (CASF). The amount granted represents 40% of the total project cost of this underserved area application filed in accordance with Resolution T-17143.

Background

On December 20, 2007, the Commission approved Decision (D.) 07-12-054 which established the two-year CASF program to provide matching funds of up to 40% of the total project costs for the deployment of broadband infrastructure in unserved and underserved areas in California.1 Resolution T-17143, approved on June 12, 2008, adopted the application requirements, scoring criteria for the award of funds, and a prescribed timeline for other filings and notifications including a projected Commission Meeting date for final approval of award(s). This same Resolution directed interested applicants seeking funding for unserved and underserved projects to file their project proposals and funding requests beginning July 24, 2008, and August 25, 2008, respectively.

On July 9, 2009, the Commission issued D.09-07-020 approving a new CASF schedule and plan for an additional round of broadband projects that would complement broadband grants awarded under the federal government's American Recovery and Reinvestment Act (ARRA).2 While retaining the 40% matching grant process, the Commission in that Decision authorized providers an option of seeking a 10% grant from the CASF concurrent with efforts to seek an 80% grant from the ARRA fund. Since the program was launched, the Commission has received project proposals that sought CASF funding for unserved and underserved areas.

As of October 29, 2009, $15.2 million has been granted for 30 projects covering 4,942 square miles benefiting 41,209 potential households as follows:

IPN submitted the Highway 36 Humboldt-Trinity Counties application on July 17, 2009. This project would provide 121 miles of fiber to serve underserved (dial-up) communities along the Highway 36 corridor from Wildwood through Mad River and Ruth to Bridgeville. IPN seeks a CASF grant for $4,212,982, equal to 40% of the project's costs, and does not plan to seek federal ARRA funds for this proposed project.

Notice/Protests

The Census Block Group (CBG) list for the Highway 36 Humboldt-Trinity Counties project appeared by county on the Commission's CASF website page under "UNDERSERVED areas proposed to be served as of July 17, 2009: Census Block Groups (CBGs)." One challenge was filed by DigitalPath, Inc. with the Communications Division (CD) for a single CBG and through verification of information the CBG was determined to be clear of the challenge.

Discussion

This Resolution adopts a total of $4,212,982 in CASF funding support for the Highway 36 Humboldt-Trinity Counties project. The project is described in detail in Appendix A.

For qualification purposes under the CASF program, the Commission defines underserved areas as those where broadband is available but no facilities-based provider offers service at speeds of at least 3 mbps download and 1 mbps upload. CD reviewed this project's eligibility through the analysis of the required data submitted. These data include, but are not limited to the following: proof of Certificate of Public Convenience and Necessity (CPCN) registration; descriptions of current and proposed broadband infrastructure; Geographic Information System (GIS) formatted Shapefiles mapping the subject areas; assertion that the area is underserved; potential subscriber size and household incomes; project construction schedule; project budget; proposed pricing and commitment period for new subscribers; and, financial qualifications of the applicant. In addition, CD reviewed the Shapefiles submitted which mapped the broadband deployment proposed using United States 2000 Census data, the January, 2008, Broadband Task Force Report (BBTF) including its on-line maps, and the revised July 9, 2009, California Broadband Task Force (CBTF) map, among others. Comparisons of submitted maps to that of the BBTF and CBTF verified the existence or non-existence of broadband service as well as speeds in areas where broadband services are available.

CD verified this project and, when necessary, requested additional information and/or meetings with the applicant to clarify its project proposal. Of the 19 CBGs in this project, DigitalPath, Inc. formally challenged one CBG in Tehama County. After review of the challenger's existing service area and the CBTF maps, and verifying with IPN, the CBG was determined to be clear of the challenge. The DigitalPath, Inc's service area exists in the east of the CBG and IPN's proposal of service is planned in a small, western portion of the CBG. CD determined that the CBGs covering the proposed area are qualified as underserved as defined in Resolution T-17143.

IPN is a telecommunications transport carrier headquartered in San Francisco. It currently provides transport solutions over its networks that directly or indirectly enable data and voice services to residential customers, small/medium/large enterprises, and local and federal governmental agencies. IPN indicates that it is committed to deploying fiber optic-based last mile networks that bypass the incumbent local carriers. It operates approximately 400 route miles of last mile access networks all of which are interconnected to its 290-mile regional fiber backbone encompassing San Francisco, Peninsula, Silicon Valley, East Bay, and Metro Sacramento. Based on its long-standing relationships with multiple utilities and asset owners, IPN has been able to develop across a large geographic area an extensive legacy-free service delivery platform via its Ethernet architecture which allows for greater system design and innovation, flexibility, reliability, and accessibility to perform network upgrades. As an example, in this Highway 36 project, IPN will partner with 101 Netlink, the last mile provider, to deploy broadband using PG&E infrastructure including transmission towers to connect these targeted underserved Humboldt-Trinity County communities.

By leveraging the PG&E network within the Redwood Coast Connect project region, IPN plans to bring fiber connectivity from the Cottonwood sub-station across approximately 121 miles into downtown Eureka. The 72-count fiber cable system, optimized for long distances and capable of withstanding ice weight and other weather conditions, will connect with existing PG&E overhead transmission infrastructure. In partnership with 101 Netlink, a California North Coast wireless high speed internet provider, the broadband network will connect to several underserved, dial-up communities along the Highway 36 corridor. Nineteen CBGs will receive at minimum speeds starting at 4 mbps download and 1.5 mbps upload. 101 Netlink commits to a 3-year fixed price to residential customers of $55 per month for the first 5 gigabytes delivered and $10 per month more for each additional 4 gigabytes.

Based on official 2000 Census data, the proposed area is reported to have approximately 408 households. However, IPN submitted current household total of 527 households based on population growth during the past eight years. The estimated coverage area of the project is 218 square miles. The Humboldt-Trinity region is comprised of rugged terrain and, consequently, this proposed area is sparsely populated. A recent study completed by the Redwood Coast Rural Action community network found that residential demand for broadband exists in the area and recommended the need for public support to acquire residential broadband connectivity. This need was furthered by the geographical obstacles that make normal commercial efforts prohibitive.3 The total cost of the Highway 36 Humboldt-Trinity Counties project is $10,532,455 with the 40% CASF subsidy amounting to $4,212,982. In light of the fact that no other applicant has submitted a proposal to deploy broadband in this specific area, CD recommends approval and award of a CASF grant for the Highway 36 Humboldt-Trinity Counties project.

This project is subject to the California Environmental Quality Act (CEQA). IPN cannot conduct ground breaking activities, and the Commission cannot disburse funds, until the Commission's CEQA review is complete. IPN agrees to identify any other special permits required and will provide those with a cross reference to the government agencies from which the permits will be or have been required for this project in compliance with all other guidelines, requirements, and conditions associated with the granting of CASF funds as specified in T-17143 including the submission of FCC Form 477. IPN will notify the Director of CD of the disposition of its CEQA review.

The Application Requirements and Guidelines on the awarding of CASF Funds4 provide that the execution of a Performance Bond is not required if 60% of the total project costs come from the applicant's capital budget and is not obtained from outside financing sources. In its application, IPN indicated that its match of the 60% of the total project costs will come from its existing capital budget as submitted in the company's financial documentation. However, CD has not received a letter of credit from IPN certifying this claim. Therefore, IPN will be required to obtain a performance bond in accordance with the existing CASF funding rules unless a letter of credit acceptable to CD is received supporting IPN's claim.

Payments to CASF Recipients

Submission of invoices from and payments to IP Networks, Inc. shall be made in accordance with Section IX of Appendix A of Resolution T-17143 and according to the guidelines and supporting documentation required in Resolution T-17143. Payment to IPN shall essentially follow the process adopted for funds created under Public Utilities Code §270. The following table describes the timeline for processing CASF payments.

Invoices submitted from IMSD to State Controller's Office (SCO) for payments

20th through 26th of Month 1

5th through 13th of Month 2

IPN may submit its invoices under Payment Cycle 1 or 2.

If any date in this payment schedule falls on a weekend or holiday, that date will be advanced to the next business day but the remaining dates in the payment schedule will remain unchanged. SCO requires 14 to 21 days to issue payment from the day that requests are received by SCO.

Comments on Draft Resolution

In compliance with PU Code § 311(g), a notice letter was emailed on October 19, 2009, informing a) all CASF applicants filing under D.09-07-020 and b) parties on the service list of R.06-06-028 of the availability of the draft of this Resolution for public comments at the Commission's website
http://www.cpuc.ca.gov/static/documents/index.htm. This letter also informed parties that the final conformed Resolution adopted by the Commission will be posted and will be available at this same website.

On November 3, 2009, the Division of Ratepayer Advocates (DRA) filed these comments.

A. Project Costs Are Too High on a "Per-Household" Basis

· DRA recommended that the Commission set a benchmark to determine the reasonableness of project costs and commented on the following;

· No justification is required from the applicant on the project cost;

· A purported "competitive bidding" process is relied on to keep project costs in check; and

· No competition is evident except in the area covered by Resolution T-17197.

Further, DRA recommended that the Commission should perform a cost review of applications for areas where there are no competitive bids since it believes the market cannot constrain costs and cannot check on cost reasonableness where competition does not exist.

DRA also suggested using a benchmark cost per household from past CASF projects to compare costs of various pending CASF projects as a proxy to determine whether costs are reasonable. DRA calculated the cost per household to be $956 based on projects approved as of September 24th and it has taken issue with those pending resolutions (e.g. Race, Ponderosa Cablevision) with DRA calculated cost per household figures for these pending resolutions above this level.

In reviewing DRA's comments, we note that its comments are flawed. DRA miscalculated the cost per household relying on total costs rather than CASF costs and has erroneously assumed that all of the CASF projects approved as of September 24, 2009 are seeking 40% funding. The Lookout Project, for instance, only requested 10% CASF funding to match their request for 80% funding from ARRA. Also, some of the projects include Contribution in Aid of Construction costs in addition to the 40% CASF funds. Thus, if the total CASF funds approved to date as of September 24, 2009 of $12.6 million is divided by the total number of households at 32,943, the result would be $384 per household, not $956.

Additionally, DRA has miscalculated reported cost for household figures. As examples, the actual CASF cost per household for Ponderosa is $389 while that for Race Communications is $390 not $3,889 and $3,901, respectively, as DRA has computed. DRA basically erred in using total project costs instead of CASF funds granted in computing cost per household.

In this resolution, IPN requests 40% CASF funding, or $4,212,982, for approximately 527 households in its project. Due to the rugged and isolated location of these residences and businesses, no other company has stepped up to serve the area at a cost per household of $7,994. IPN, in conjunction with PG&E's network, the Redwood Coast Connect Project, and 101 Netlink as the last-mile provider, proposes a construction plan that will go where no other company cares to invest.

More importantly, DRA misses the point in seeking to analyze costs of individual projects. The Commission has already determined that CASF cost per household data cannot be standardized for all areas. In fact, the latest response to this issue is on page 12 of Resolution T-172336, where the Commission states that:

"The overriding goal of the CASF program - that is to provide broadband service to areas where there is none or to improve the quality of broadband service to areas that currently suffer from unreliable, spotty, and inferior speeds not geared towards the present economic and business need. It was not the intent of the Commission to set a ceiling or an absolute minimum that applicants need to meet in order to qualify for funding. As the Commission has stated in several CASF resolutions adopting funding for projects, "low speed is better than no speed." Likewise, the areas that are being funded and will be funded by CASF are areas that have no broadband precisely because these are high cost areas that are characterized by rugged terrain and low population density, which would not otherwise be economically viable or make business sense for private entities to invest in without CASF funding assistance."

In summary, CASF project costs cannot be standardized precisely because not all areas have the same topographical characteristics, the same demographics, or can be served by the same technology or infrastructure. Accordingly, we do not agree with the DRA recommendation that past approved CASF projects covering different areas should be used as an absolute basis to deny pending CASF projects, as it would unfairly prevent residents in areas of the State from receiving broadband service simply because they live in areas that are more costly to serve.

With respect to DRA competitive bidding comments, again this issue has been previously raised by DRA and addressed by the Commission. The Commission has already stated in Resolutions T-17234 and T-17229:

"As the CASF/ARRA process relies on a competitive bidding process to keep an applicant's costs and proposed installation fees in check, rather than a cost reasonableness review requiring the applicant to justify details of specific project costs and proposed installation fees. Under the established CASF/ARRA process, an applicant risks not receiving a CASF/ARRA award if its costs are too high and other carriers bid at lower costs."

Page 13 of Resolution T-17233 also states:

"We also take exception to the statement of parties that there is no competition. Under existing rules, CBGs and Zip Codes are posted on the CASF webpage 7 days after an application is received. Any party who wishes to submit a competing application may do so by submitting a letter of intent to submit a counter-proposal and / or submit a counter-proposal directly within the prescribed timelines as stated in Resolution T-17143 and D.09-07-020. As Resolution T-17197 and draft Resolution T-17225 demonstrate, competition does exist."

Where there is no counter-proposal or competing proposal submitted for an area, this implies that the broadband cost for developing broadband infrastructure in the area is too high that even with the 40% or 10% CASF funds match, broadband providers are not confident that it would make business sense for them to invest in the area.

In summary, we believe the CASF competitive bidding process renders cost reasonableness review as an unnecessary step in our program and one that will cause unserved and underserved communities in the state a delay in receiving broadband service.

B. The CASF Program Requires an Audit

DRA commented that all resolutions should include an audit requirement as provided in the CASF legislation and D.07-12-054. However, we note that all resolutions have an Ordering Paragraph to the effect that they will comply with all the guidelines, requirements and conditions associated with the CASF funds award as specified in resolution T-17143 and D.07-09-020. Page A-14 of Resolution T-17143 describes the payment procedure, which includes the submission of progress reports and invoices, as well as the right of the Commission to conduct any necessary audit, verification, and discovery during project implementation / construction to ensure that CASF funds are spent in accordance with Commission approval. Thus, the audit requirement and all other requirements applicable to CASF fund recipients as specified in Resolution T-17143 are already addressed the Ordering Paragraph.

Likewise, as DRA pointed out, the Commission, in SB 1193 and AB 1555, financial and performance audits of the implementation and effectiveness of the CASF is required and a report on the said audits submitted to the Legislature by December 31, 2010. The Commission will comply with this requirement.

C. Project Costs Are Confusing

DRA asked for clarification about subscriber-related data. The prior version of the Resolution inadvertently used the outdated 2000 Census data submitted by IPN to report households. The revised subscriber total should have been shown as 527, an increase in residents during the last eight years, as explained by IPN in its application. This Resolution corrects the subscriber data entry in Appendix A.

Conclusion

The Commission finds CD's recommended CASF fund award for this underserved Highway 36 Humboldt-Trinity project as discussed in this resolution and summarized in Appendix A reasonable and consistent with Commission orders and, therefore, adopts such award. IPN's contingent funding is based on receiving CEQA review approval. If IPN is unable to obtain CEQA review approval and as a result will not build the Highway 36 Humboldt-Trinity project, then IP Networks, Inc. should notify the CD Director that this project will not be built so that CASF funds may be reallocated to other grants.

Findings

1. The California Advanced Services Fund (CASF) was implemented by Decision (D.) 07-12-054. The CASF was established as a two-year program that will provide matching funds of up to 40% of the total project costs for the deployment of broadband infrastructure in unserved and underserved areas in California, subject to the Commission's completion of review pursuant to the California Environmental Quality Act.

2. Resolution T-17143, approved on June 12, 2008, adopted the application requirements and scoring criteria for the award of funds, a prescribed timeline for other filings, and notifications including a projected Commission Meeting date for final approval of award(s).

3. On July 9, 2009, the Commission issued D.09-07-020 approving a new CASF schedule and plan for an additional round of broadband projects that would complement broadband grants awarded under the federal government's American Recovery and Reinvestment Act (ARRA). While retaining the 40% matching grant process, the Commission in this Decision authorized providers an option of seeking a 10% grant from the CASF concurrent with efforts to seek an 80% grant from the ARRA fund.

4. IP Networks, Inc. (U-6362-C) filed an application on July 17, 2009, seeking CASF funding for 40% of its project, or $4,212,982.

5. Underserved areas are defined as areas where broadband is available but no facilities-based provider offers service at speeds of at least 3 Mbps download and 1 Mbps upload.

6. A list of census block groups (CBGs) appeared by county on the Commission's CASF website page under "UNDERSERVED areas proposed to be served as of July 17, 2009: Census Block Groups (CBGs)." The Communications Division (CD) proceeded with its independent review and analysis of this project area to verify that it was underserved as of the applicant's filing date.

7. CD reviewed the IP Networks, Inc. Highway 36 Humboldt-Trinity Counties project eligibility through the analysis of required data submitted. These data include, but are not limited to: proof of CPCN registration; descriptions of current and proposed broadband infrastructure; geographic information system (GIS) formatted Shapefiles mapping the subject areas; assertion that the area is underserved; potential subscriber size and household incomes; project construction schedule; project budget; proposed pricing and commitment period for new subscribers; and, financial qualifications of the applicant.

8. Shapefiles, which mapped the broadband deployment, were reviewed by CD using sources including, but not limited to, the United States 2000 Census data, the January, 2008, Broadband Task Force Report, and the revised July 9, 2009, California Broadband Task Force (CBTF) map, among others. These maps helped to verify the existence or non-existence of broadband service areas and broadband speeds, where available.

9. CD verified this project and, when necessary, requested additional information and/or meetings with the applicant to clarify its project proposal. Of the 19 CBGs in this project, DigitalPath, Inc. formally challenged one CBG. Subsequent review of the challenge revealed that IP Networks, Inc.'s proposed service area is not planned within the challenger's existing area. Therefore, CD determined that the CBGs covering the proposed area are qualified as underserved as defined in Resolution T-17143.

11. The area to be served spans 218 square miles and the project will deliver service to 527 rural households. The region is comprised of rugged terrain and, consequently, this proposed area is sparsely populated.

12. A recent study found that residential demand for broadband exists in the area and recommended the need for public support to acquire residential broadband connectivity. This need was furthered by the geographical obstacles that make normal commercial efforts prohibitive.7

13. The total cost of the Highway 36 Humboldt-Trinity Counties project is $10,532,455 with the 40% CASF subsidy amounting to $4,212,982.

14. After its independent review of this singular proposal to deploy broadband in this specific area, CD determined that the Highway 36 Humboldt-Trinity Counties project application for underserved areas covering 19 CBGs is eligible to receive funding under CASF.

15. The posting of a performance bond by IP Networks, Inc. will not be required provided a letter of credit acceptable to CD is received supporting the applicant's claim to supply matching funds equal to 60% of the total cost of this project. Otherwise, IP Networks, Inc. will be required to obtain a performance bond in accordance with the existing CASF funding rules.

17. IP Networks, Inc. should comply with all guidelines, requirements, and conditions associated with the granting of CASF funds as specified in Resolution T-17143 including the submission of FCC Form 477 and compliance with the CEQA, among others.

18. IP Networks, Inc. should notify the Director of the Communications Division of the disposition of its CEQA review.

19. A notice letter was emailed on October 19, 2009, informing a) all applicants filing for underserved areas and b) parties on the service list of R.06-06-028 of the availability of the draft of this Resolution for public comments at the Commission's website
http://www.cpuc.ca.gov/static/documents/index.htm. This letter also informed parties that the final conformed Resolution adopted by the Commission will be posted and available at this same website.

20. Comments filed by the Division of Ratepayer Advocates are addressed in this Resolution.

21. The Commission finds CD's recommendation of CASF award for the Highway 36 Humboldt-Trinity Counties project summarized in Appendix A of this Resolution reasonable and consistent with Commission orders and should be adopted.

THEREFORE, IT IS ORDERED that:

1. The California Advanced Services Fund shall award $4,212,982 from the California Advanced Services Fund to IP Networks, Inc. for the Highway 36 Humboldt-Trinity Counties project for underserved areas as described in the Discussion section and summarized in Appendix A of this Resolution. The award is contingent on IP Networks, Inc. receiving California Environmental Quality Act review approval.

2. The posting of a performance bond by IP Networks, Inc. is not required provided a letter of credit acceptable to the Communications Division is received supporting the applicant's claim to supply matching funds equal to 60% of the total cost of this project. Otherwise, IP Networks, Inc. shall be required to obtain a performance bond in accordance with existing CASF funding rules.

3. IP Networks, Inc. shall comply with all guidelines, requirements and conditions associated with the CASF funds award as specified in Resolution T-17143 including the submission of FCC Form 477 and compliance with the California Environmental Quality Act, among others.

4. IP Networks, Inc. shall notify the Director of the Communications Division of the disposition of its CEQA review.

5. The program fund payment of $4,212,982 for this Commission-approved underserved project shall be paid out of the CASF fund in accordance with the guidelines adopted in Resolution T-17143.

6. Payments to the CASF recipient shall be in accordance with Section IX of Appendix A of Resolution T-17143 and in accordance with the process defined in the "Payments to CASF Recipients" section of this Resolution.

This Resolution is effective today.

I hereby certify that this Resolution was adopted by the Public Utilities Commission at its regular meeting on November 20, 2009. The following Commissioners approved it:

1 SB 1193 (Chapter 393, Stats. of 2008) established the California Advanced Services Fund as a new public purpose program.

2 The American Recovery and Reinvestment Act appropriates $7.2 billion for grants and loans to support broadband deployment on a national level. ARRA offers a unique and ground breaking opportunity for California to partner with the federal government and other state agencies in advancing the goal of bridging the digital divide.

5 The above schedule is contingent on the CASF recipient submitting clear, complete, and error-free invoices to CD. Additional time to process payments may be necessary if CD finds problems with the submitted invoices.

6 Resolution T-17233, adopted by the Commission on October 29, 2009, approved CASF application requirements for broadband providers/applicants other than holders of telecommunications Certificate of Public Convenience and Necessity and registered wireless providers.